Andrew Lo Quotations

Most people are overconfident about their own abilities. That is probably a good thing. But we would be horrified if a physician's aide engaged in heart surgery.

Maybe we should teach schoolchildren probability theory and investment risk management.

Great investors need to have the right combination of intuition, business sense and investment talent.

While neurological studies have tried to identify components responsible for fear and greed, the impact on finance is less clear.

Some people might say, 'Can we afford it?' I think that's asking the wrong question... We should instead be asking, 'Can we really afford not to try?'

Many of us like to think of financial economics as a science, but complex events like the financial crisis suggest that this conceit may be more wishful thinking than reality.

What makes this story so remarkable is that throughout my early childhood I had ongoing learning difficulties, particularly in mathematics. I struggled to learn the multiplication table, and no matter how hard I tried, I simply couldn't remember 6 times 7 or 7 times 8.

My mother died of lung cancer last year. I felt helpless. As an economist, I thought, What can I do?

During periods of extreme fear or greed, you don't have the proper balance between those two to generate market efficiency and you get extremes in behavior.

It's important to understand how people perceive risk, and how that translates into investment behavior.

Financial crises are an unfortunate but necessary consequence of modern capitalism.

Ideas percolate. Through natural selection, the best ones survive.

If troubled companies want to explain away 2008 as a 'black swan,' then someone should take responsibility for creating the oil slick that seems to have tarred the entire flock!

The United States has the most sophisticated financial markets in the world, which does not leave much room to maneuver. But it also offers investors the greatest access to information and the ability to execute trades quickly and efficiently. So it is a mixed bag of opportunity.

I don't entirely reject the idea of efficient markets. It needs updating.

Cancer is the great equalizer. Everyone is affected by it either themselves or through loved ones.

The adaptive markets hypothesis says that all economic institutions, like our own species, develop and change over time, depending on the population of investors that are engaged with them.

If we are able to allow people to earn a decent rate of return, with sufficient scale, we can all do well by doing good.

More and more investors may be coming into markets everywhere but that doesn't mean that the markets are really getting more and more efficient, even in the United States. It does mean that there is more access for savvy investors who watch the money flows.

Just because we didn't see an event (after GM and Ford) is small comfort. There are large exposures out there we haven't seen yet. I'd say the jury is still out on whether the industry can withstand the shocks that may come out over the next few months.

The fact that hedge funds have become so important is really the flip side of problems that could be generated. If they ceased to function in the way they are designed, that would create a fair amount of systemic risk.

Economists suffer from a deep psychological disorder that I call 'physics envy'. We wish that 99 percent of economic behavior could be captured by three simple laws of nature. In fact, economists have 99 laws that capture 3 percent of behavior. Economics is a uniquely human endeavor ...

The risks facing hedge funds are non-linear and more complex than those facing traditional asset classessuch risks are currently not widely appreciated or well-understood

Labor is getting more expensive and technology is getting cheaper.

Finance and economic research has hit a wall. We can't answer any more questions by running another regression analysis. Now, we need to get inside the brain to understand why people make decisions.

At this point, there isn't an obvious place to park money, ... A number of strategies that produced good returns in the past are no longer profitable. A lot of the smart money is sitting on the sidelines right now just waiting for the direction to change.

Credit derivatives and hedge funds have grown fairly spectacularly over the last five years.

The short answer is, I don't know. Nobody knows. The reason for that is, we don't have enough data on the particular exposures we need to measure to answer that question.

If you rank the top 50 one-day moves in the S&P 500, a fair number of those happened within the last five or 10 years. That tells you that we're in a different, riskier market now.